Area commercial real estate market improving

Monday

Sep 30, 2013 at 11:12 AM

New Hanover County's commercial real estate market is showing signs of a recovery.

By Wayne FaulknerWayne.Faulkner@StarNewsOnline.com

New Hanover County's commercial real estate market is showing signs of a recovery.A Walmart Supercenter is planned for Porters Neck. Mayfaire has submitted preliminary plans to the city for new phases of retail development. New Hanover Regional Medical Center is building a new outpatient cardiology center. Numerous multifamily housing projects are either being built or going through the city and county approval processes. More are planned.But the market is more than big plans and big deals. It's smaller buildings and leasing as well as sales.So views are split on where the market for offices, retail and apartments stands. And some of the optimism is based more on outlook than what's happening now. "The market is definitely improving. There's a ton of developers looking at new projects," said Nicholas Silivanch, vice president of retail leasing and acquisitions at Coldwell Banker Commercial in Wilmington."There's a lot going on in multifamily right now. We're seeing an uptick in junior box and big box users looking in the area for retail sites," he said. (A junior box is a store of about 15,000 to 30,000 square feet, such as a Bed Bath & Beyond.)"The commercial market has shown definitive signs of improvement over the last 24 months," said Brian Eckel, principal at Cape Fear Commercial. "The investor market is as strong as we have seen it in the last four to five years."Setting the stageThe trough that commercial real estate is emerging from is deep. But it could have been even worse.One thing that mitigated the market plunge here is that Wilmington didn't get overbuilt with offices and stores as Charlotte and Raleigh did, Silivanch said. And that sets the stage for a comeback for construction."Now that allows us to be able to come out of the ground again with new product." Other commercial real estate experts here were more circumspect.Any kind of speculative building "is a tough proposition," and most construction in the area is by chain stores, said Mike Nadeau of Creative Commercial Properties. McDonald's, for instance, demolished its restaurant at Shipyard Boulevard and Carolina Beach Road and will build a new one on the site.The market is better, but "one thing has not changed: Lease and sales prices are low," said Hansen Matthews, a partner at Maus Warwick Matthews. On the plus side, "the closed sales and the leases have increased significantly. That marks the spot we've all been looking forward to – when people start agreeing on price.... That has to happen before the free fall we were in could end."The downturnAnd it was a free fall."The main point is everything is relative," Nadeau said. "After the trough we went through, any activity" would be good.The market depression led to bankruptcies, and banks took scores of properties back, further depressing prices and rents.

Inventories of both land and commercial buildings in Brunswick and New Hanover counties continue to be "unhealthy," said Pete Frandano of Southport Realty. There are still several years worth of inventory in both counties, he said.Those numbers are starting to come down, but especially in Brunswick much commercial development will have to wait for the rooftops to materialize – in other words, for housing to catch up from its own slump."The downturn in commercial was much more severe than residential," Nadeau said. "In 2009 the commercial market shut down, the banks shut down. It went to nothing."But Nadeau added, "There is an ongoing sentiment that we made it through, so we need to start planning for the future."

"For the most part, the banks have worked through their distressed portfolio," Eckel said. "There is also good evidence that the pricing is increasing."He cited figures from his firm: Prices for the last 16 bank-owned properties sold averaged 104.45 percent of appraised value.

"Traditionally, commercial lags the residential market by a year or two," Frandano said. "I would bet that if you polled my colleages they would say the commercial market is definitely better." Rents, meanwhile, are holding steady, Nadeau said. Matthews held a similar view. But Silivanch saw them beginning to rise from depressed rates, saying that through the end of the second quarter, retail rents averaged $13.73 a square foot, up from the $12s a year ago. And he expects an increase to $14.50 next year. MultifamilyMultifamily is the strongest of any commercial real estate sector, the experts agreed."Apartments have certainly been the bright spot in all of the commercial real estate industry," said Eckel, whose firm developed the Headwaters at Autumn Hall, which is 95 percent leased. "We ... are looking at other opportunities throughout this marketplace for new projects."Matthews said there will be more multifamily complexes. "The question in my mind is how many more. "I think we should be fine for the next year, and beyond that I don't see any huge shakeout," he said. "But if everything proposed is developed it would not surprise me to see some softening of occupancy," especially in older projects.Silivanch sees the University of North Carolina Wilmington as a hedge against significant oversupply of apartments. Several of the apartment complexes being built or proposed are aimed at UNCW students."I don't know how much of a saturation point we will ever reach because of the university." He saw a relationship between the university's growth and multifamily development."I feel like, because the university has so much excess land where they can build school buildings, by adding multifamily we are providing more opportunities to help grow our university," he said.Additionally, housing financed by federal tax credits is "never going to go out of style," Silivanch said, citing the relative high cost of living here. "Families that are living between 60 and 30 percent of area income," he said, "are going to need somewhere to live – teachers, firefighters, entry-level people."

Wayne Faulkner: 343-2329On Twitter: @bizniznews

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